Brady, Kelly Seek Details on Periodic Child Credit Payments

LETTER: Biden Must Stop Wasting Americans' Tax Dollars in Fraud & Improper Payments

Letters come amid signals from Democrats to make expanded refundable Child Tax Credit permanent.

APRIL 12, 2021 

WASHINGTON — At the very moment Democrats are pushing to raise job-killing taxes and make the expanded refundable Child Tax Credit permanent, billions of taxpayer dollars are already being lost in improper payments in a similar program, write Ways and Means Republican Leader Kevin Brady (R-TX) and Ways and Means Oversight Subcommittee Republican Leader Mike Kelly (R-PA) in letters to top Biden Administration officials. Warning of the Child Tax Credit program's susceptibility to rampant fraud and impropriety, they urge greater protection for hardworking Americans from wasteful spending.

Key Takeaways:

• Over the last decade, the IRS has wasted an astonishing amount of Americans' hard-earned tax dollars in improper tax credit payments.

  • In 2015, the IRS made $15.6 billion (23.8% of all payments) in improper Earned Income Tax Credit (EITC) payments.

  • In 2019, that number increased over time to $17.4 billion (25.3% of all payments) in improper EITC payments. A concerning pattern also exists for Additional Child Tax Credit (ACTC).

• More spending shouldn't result in more fraud: A new, monthly payment system will lead to an increase, rather than a decrease in improper payments.

  • In 2020, the extra $600 in weekly unemployment insurance benefits was a boon for fraudsters and criminal rings.

  • A new, monthly cash payment system of $3,600 in the Child Tax Credit refund will serve as an even more powerful fraud magnet.

In a letter to Biden's top economic adviser Gene Sperling, the members wrote:

“We write with deep concerns about provisions in the partisan American Rescue Plan Act of 2021 (ARP) that expand refundable tax credits. We are particularly concerned about the structure of the new refundable child tax credit (CTC). The new CTC and other provisions in ARP fail to learn from lessons of the past, are not targeted to pandemic relief, and risk the loss of billions of taxpayer dollars in fraudulent and improper payments.”

They also called on the Biden Administration to indicate whether the refundable Child Tax Credit will be made permanent. The full letter to Sperling may be viewed here. Read the letters to the IRS (here), GAO (here), and TIGTA (here).

---

April 11, 2021

Gene Sperling
White House American Rescue Plan Coordinator
The White House
1600 Pennsylvania Avenue, N.W.
Washington, DC 20500

Dear Mr. Sperling:

We write with deep concerns about provisions in the partisan American Rescue Plan Act of 2021 (ARP) that expand refundable tax credits. We are particularly concerned about the structure of the new refundable child tax credit (CTC). The new CTC and other provisions in ARP fail to learn from lessons of the past, are not targeted to pandemic relief, and risk the loss of billions of taxpayer dollars in fraudulent and improper payments.

Refundable tax credits can be better understood as cash payments; that is, they operate as cash from the federal government rather than traditional tax credits that are a return of tax dollars paid or owed to the federal government. As such, Congress has received numerous reports from the Government Accountability Office warning of the “high risk” nature of refundable tax credit programs. They risk a high level of erroneous payments, often through fraud but sometimes through taxpayer confusion or error.

According to reports from the Treasury Inspector General for Tax Administration (TIGTA), the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) have a long history of very high improper payment rates arising from both errors and fraud. Back in 2015, the IRS made $15.6 billion (23.8% of all payments) in improper EITC payments.¹ That number increased over time to $17.4 billion (25.3% of all payments) in improper EITC payments in 2019.² A concerning pattern also exists for ACTC. A new, monthly payment system will likely lead to an increase, rather than a decrease in improper payments.

In 1996, bipartisan efforts transformed routine cash payments into a stepping-stone to the dignity of work, while lifting countless families out of an endless cycle of dependency. This bipartisan initiative succeeded because policymakers knew that helping families enter the workforce would provide better lives for themselves and their children. We are concerned that a permanent extension of the expanded refundable tax credits in ARP ignores those lessons.

It is particularly troubling that Ways and Means Committee Democrats removed the connection to work and upward mobility in the new refundable CTC, despite the fact that we know families are better off when they have work. Furthermore, Democrats rejected a Republican amendment that would have required a study by TIGTA to help ensure that the refundable tax credit expansions in ARP are implemented without leading to billions of dollars in fraud.

In 2020, the extra $600 in weekly unemployment insurance benefits was a boon for fraudsters and criminal rings that caused the Federal Trade Commission to issue dire warnings about widespread fraud and identity theft, a problem still plaguing many fraud victims. The allure of a new $3,600 cash payment for each of certain children will serve as an even more powerful fraud magnet.

We have already seen how well-intended programs can lead to massive levels of fraud without proper safeguards and oversight. For this reason, we respectfully request that before implementing the new CTC cash payment program of up to $3,600 per child, the Biden Administration:

Lastly, please indicate whether the Biden Administration intends the new CTC cash payment program to be a temporary pandemic response for 2021 only or instead plans to make these cash payments a permanent program with no connection to work. There are unmistakable signals that the new CTC is not intended to be a temporary but instead a permanent feature of U.S. law. First, these expansions were passed on a partisan basis by Ways and Means Committee Democrats in 2019, long before the pandemic. Additionally, several prominent Democrats have indicated their desire to make the new CTC a permanent cash payment program rather than a one-year provision. The Administration's perspective on this policy decision is important as Congress continues its work.

Thank you for your attention to this request.

Sincerely,

KEVIN BRADY
Ranking Member
Committee on Ways and Means

MIKE KELLY
Ranking Member
Ways & Means Oversight Subcommittee

April 11, 2021

The Honorable Charles P. Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

Dear Commissioner Rettig:

We write to express serious concern about the expansion of the Child Tax Credit (CTC) in the American Rescue Plan Act (ARP) and the related provision that requires the IRS to develop a system to administer periodic payments rather than payments once per year. While this provision expires at the end of the year, Democrats in Congress have made clear in public statements that they intend to make these provisions permanent and that they intend that “periodic” payments will eventually be “monthly” payments.¹ Our concern focuses on the problem of improper payments and the IRS's ability to create a secure and effective payment system in such short period of time, given that this program expires at the end of 2021. Press reports indicate that President Biden and congressional Democrats plan to introduce significant tax increases in connection with the CTC expansion and numerous other spending priorities. The claim that tax increases are necessary is dubious given the apparent lack of concern with expanding programs that have significant erroneous payments and fraud at the same time.

According to reports from the Treasury Inspector General for Tax Administration (TIGTA), the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) have a long history of very high improper payment rates arising from both errors and fraud. Back in 2015, the IRS made $15.6 billion (23.8% of all payments) in improper EITC payments.² That number increased over time to $17.4 billion (25.3% of all payments) in improper EITC payments in 2019.³ In other words, not much improvement has been shown on this issue in recent years. A concerning pattern also exists for ACTC. Improper payment estimates for ACTC for fiscal year 2020 are approximately $4.5 billion (12% of all payments).

Expanding advanceable tax credits such as these without safeguards to address payment integrity problems will surely lead to expansions in improper payments. A monthly cash payment system that allows individuals to update eligibility information in a real-time basis could create significant opportunities for additional fraud and errors. We are very concerned that the IRS is being asked to stand up a brand-new payment system in an extremely rushed manner. For example, former Taxpayer Advocate Nina Olsen estimated that it would take 12-18 months to create a sufficient monthly payment system.⁴

Given the significant problems with improper payments involving refundable tax credits and the rushed nature of this new payment system, we ask that you provide answers to the following questions:

Please provide answers to these questions by April 24, 2021. If you have any questions, please contact Rachel Kaldahl or Sean Clerget on the Ways and Means Oversight Subcommittee staff.

Sincerely,

KEVIN BRADY
Ranking Member
Committee on Ways and Means

MIKE KELLY
Ranking Member
Ways & Means Oversight Subcommittee

---

April 11, 2021

The Honorable Gene L. Dodaro
Comptroller General of the United States
United States Government Accountability Office
441 G Street, NW
Washington, DC 20548

Dear Mr. Dodaro:

We write to express concern about the ability of the Internal Revenue Service (IRS) to stand up an entirely new Child Tax Credit (CTC) periodic or monthly payment system in a matter of just several months. The American Rescue Plan Act requires the IRS to develop a system to make periodic payments rather than one payment per year. We are not aware of the IRS creating a new system like this in such a short period of time. While the provision is set to expire at the end of the year, Democrats in Congress have made it clear that they intend to make these provisions permanent and that they intend for “periodic” payments to become “monthly” payments.¹

We are concerned that in developing a completely new information gathering and payment system in such a rushed fashion, the agency's already very high improper payment rate will only increase. Press reports indicate that President Biden and congressional Democrats plan to introduce significant tax increases in connection with the CTC expansion and numerous other spending priorities. The claim that tax increases are necessary is dubious given the apparent lack of concern with expanding programs that have significant erroneous payments and fraud at the same time.

According to your own reports, the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) have a long history of very high improper payment rates arising from both errors and fraud.² The Treasury Inspector General for Tax Administration (TIGTA) has reached a similar conclusion. For example, in 2015, TIGTA reported that the IRS made $15.6 billion (23.8% of all payments) in improper EITC payments.³ And that number increased over time to $17.4 billion (25.3% of all payments) in improper EITC payments by 2019.⁴ A concerning pattern also exists for ACTC. Improper payment estimates for ACTC for fiscal year 2020 are approximately $4.5 billion (12% of all payments).

Expanding advanceable tax credits such as these without safeguards to address payment integrity problems will surely lead to increased improper payments. Creation of a monthly cash payment system that allows individuals to update eligibility information on a real-time basis could create significant opportunities for additional fraud and errors. We are very concerned that the IRS is being asked to stand up a brand-new payment system in an extremely rushed manner. For example, former Taxpayer Advocate Nina Olsen estimated that it would take 12-18 months to create a sufficient monthly payment system.⁵

Given the above concerns, we write to request that the Government Accountability Office complete the following:

• A brief review of the extent of improper payments made to claimants of advanceable tax credits like the EITC and ACTC to include an analysis of what, if any, payment safeguards the IRS is including in its new CTC periodic payment system; and

• A comprehensive report on the implementation of the new CTC periodic payment system with a focus on improper payment rates and payment integrity within the new system.

Thank you in advance for your prompt attention to this matter.

Sincerely,

KEVIN BRADY
Ranking Member
Committee on Ways and Means

MIKE KELLY
Ranking Member
Ways & Means Oversight Subcommittee

---

April 11, 2021

Inspector General J. Russell George
Treasury Inspector General for Tax Administration
1401 H Street, NW
Washington, DC 20005

Dear Inspector General George:

We write to express serious concern about the expansion of the Child Tax Credit (CTC) in the American Rescue Plan Act (ARP) and the related provision that requires the IRS to develop a system to make periodic payments rather than one payment per year. Democrats have made clear in public statements that they intend to make these provisions permanent and that they intend that “periodic” payments will eventually be “monthly” payments.¹ Our concern focuses on the problem of improper payments and the IRS's ability to create a secure and effective payment system in such short period of time, given that this program expires at the end of 2021. Press reports indicate that President Biden and congressional Democrats plan to introduce significant tax increases in connection with the CTC expansion and numerous other spending priorities. The claim that tax increases are necessary is dubious given the apparent lack of concern with expanding programs that have significant erroneous payments and fraud at the same time.

According to your own reports, the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) have a long history of very high improper payment rates arising from both errors and fraud. Back in 2015, the IRS made $15.6 billion (23.8% of all payments) in improper EITC payments.² That number increased over time to $17.4 billion (25.3% of all payments) in improper EITC payments in 2019.³ A concerning pattern also exists for ACTC. As you know, improper payment estimates for ACTC for fiscal year 2020 are approximately $4.5 billion (12% of all payments).

Expanding advanceable tax credits such as these without safeguards to address payment integrity problems will surely lead to expansions in improper payments. Creation of a monthly cash payment system that allows individuals to update eligibility information in a real-time basis could create significant opportunities for additional fraud and errors. We are very concerned that the IRS is being asked to stand up a brand-new payment system in an extremely rushed manner. For example, former Taxpayer Advocate Nina Olsen estimated that it would take 12-18 months to create a sufficient monthly payment system.⁴

Given these concerns, we ask that TIGTA conduct robust oversight of the implementation of this program by the IRS and provide regular updates to the Committee.

Sincerely,

KEVIN BRADY
Ranking Member
Committee on Ways and Means

MIKE KELLY
Ranking Member
Ways & Means Oversight Subcommittee